Monday, March 26, 2012

Court dismisses false advertising claims against New York Law School

Gomez-Jimenez v. New York Law School, --- N.Y.S.2d ----, 2012 WL 934387 (N.Y.Sup.), 2012 N.Y. Slip Op. 22071
Nine graduates of NYLS sued, alleging that published data about graduate employment and salaries was misleading and fraudulent, that they relied on this data, and that they suffered harm as a result. They alleged that many graduates hold part-time or temporary employment and can barely pay their debts.  They sought damages equal to the difference between the tuition they paid and the “true value” of a NYLS degree.  The court dismissed the complaint, with some fairly unsympathetic observations.
NYLS enrolls 1500 students at $47,800/year.  Some of the plaintiffs are working as lawyers, and others aren’t, despite having relatively successful law school records.  The court noted that most of the plaintiffs “entered NYLS before the Great Recession and graduated right into it.”  The allegedly misleading information was disseminated to the entering classes from 2005 to 2010.  Plaintiffs allege that NYLS reported that 90-92% of graduates secured employment within nine months of graduation, but didn’t report what percentage of that was full-time or even legal employment.  A barista and a contract attorney would equally show up as “employed,” the former in “business” and the latter in “private law practice.”  Further, the data allegedly inflated graduate mean salaries by “reporting them based on a small, deliberately selected, intensely solicited, subset of graduates. The subset of graduates ranged from 22 to 26 percent, and the circumstances relating to its composition were not disclosed by NYLS. In two years, 2005 and 2006, NYLS did not report the percentage of graduates on which the compensation statistic was based at all.”
More generally, plaintiffs alleged false representations and omissions with respect to employment rates, data falsely giving the appearance that most graduates got full-time permanent jobs requiring law degrees, “grossly inflated salaries, and false statements regarding the value of a NYLS degree.”  They alleged that NYLS’s employment and salary claims conflicted with statistics reported by the National Association for Law Placement (NALP) and with “the reality of NYLS's ranking by the U.S. News & World Report.”  The data for 2005-2009 graduating classes didn’t report the percentage of graduates who had positions that required or preferred a law degree, or were funded by a NYLS Fellowship Program. In some cases, the data gave the average salary for graduates working for firms, allegedly implying that most employed graduates were in fact working for firms.  (The court thought that the documents on which the complaint was based in fact revealed some of the key information that was allegedly omitted in each year, including percentage breakdowns for type of work; size of law firm for those in private practice; and median salaries for small-medium size law firms, large law firms, business, government, and public interest positions.)
The 2010 data were more detailed. Based on a 95% response rate, 92% of the class was employed 9 months after graduation, 42% in private law practice, 27% in business, 17% in government, 3% each in public interest, clerkships, and academia.  Five percent were seeking employment and 3% were unemployed and not seeking employment; 5.5% of employed graduates had positions funded by a NYLS Fellowship.  About 80% had positions that required or preferred a law degree.  Based on a 26% response rate, NYLS reported average salaries of $107,343 for those in private law practice, $86,667 for those in business and $56,910 for those in government.  
Based on these allegations, plaintiffs alleged violations of NY GBL 349, fraud, and negligent misrepresentation.  The GBL claim required materially deceptive consumer-oriented conduct that caused the plaintiff injury.  Justifiable reliance is not required, nor an intent to deceive, but actual injury is.
The court first rejected NYLS’s defense under GBL 349(d), which creates a complete defense for acts or practices in compliance with rules, statutes, etc. administered by any part of the US government, as interpreted by any part of the US government.  The Higher Education Act specifies how information about employment, graduation, etc. statistics should be made available and authorizes the Department of Education to adopt implementng regulations, which in turn indicate how such information is to be obtained (alumni or student satisfaction surveys) and what disclosures should be made.  The law authorizes the DOE to select accrediting agencies or associations, and for law schools that’s the ABA.  The ABA approved standards directing law schools to publish basic consumer information about placement rates and bar passage data; these specify the manner in which law schools are to collect and report employment and salary data.  NYLS argued that it rigorously complied with the DOE’s rules and regulations, but the court disagreed that this was a defense.
The rules and regulations were written by the DOE, but interpreted/implemented for law schools by a private association rather than by a government agency.  The 349(d) exemption doesn’t include interpretations by such associations. 
The court next turned to the key standard: whether the conduct complained of would be materially deceptive to a reasonable consumer acting reasonably under the circumstances.  The only allegations supported by facts were that NYLS failed to differentiate among types of employment when it published its employment statistics and that it published salary data based on a small group of students.
NYLS disclosed the percentage of graduates who reported empoyment information, and reported high employment rates.  Plaintiffs alleged that these statistics deceptively made it appear that the jobs were full-time permanent positions for which a law degree is required or preferred.  “They contend that in the circumstances where all applicants want a full-time law job, and are willing to take on in excess of $100,000 of debt to be eligible for one, any reasonable consumer would infer NYLS's data was reporting full-time, permanent employment for which a law degree was required or preferred, thus purporting to demonstrate success at finding employment.”
But NYLS never said this. The court didn’t think these statistics would be materially misleading to a reasonable consumer acting reasonably.  College graduates seriously considering law schools are a sophisticated subset of education consumers, “capable of sifting through data and weighing alternatives before making a decision regarding their post-college options.”  They have many options for getting information, including sources cited by plaintiffs themselves (NALP’s employment reports, studies, news articles).  NALP reported that 40% of graduates found full-time legal employment, which provides context for a reasonable consumer.  Plaintiffs alleged that, because NYLS was a lower tier US News school, “logic dictates that NYLS's true employment rate would be below the statistical mean of the bell curve.” But: “One would think that reasonable consumers, armed with the publicly available information from US News that plaintiffs cite, thus would avail themselves of plaintiffs' own logic as stated in their complaint when it comes to evaluating their chances of obtaining the full-time legal job of their choice within nine months post-graduation.” (Thus does law deny the human tendency to bright-side issues of this sort.)  US News, the court noted, ranks schools in a number of job-related categories, including employment rates and salaries.
As for the allegation that the salary data were misleading because they were based on a “deliberately selected” small sample, the low percentage of respondents was disclosed whenever the average salary statistic appeared.  In addition, the materials cautioned that the highest reported salary for those years “is not the typical salary for most law school graduates—in New York City and nationwide.”  Nor did NYLS represent that the sample was in any way representative of the salaries of all employed graduates.  There could be no GBL claim when the allegedly deceptive practice was fully disclosed.
The court had a lot more to say, though.  Consumers shouldn’t have been surprised that the most lucrative law jobs go to graduates of high-ranking schools.  Plaintiffs noted NYLS’s “lackluster ranking and reputation” and the statement of one NYLS professor that “[a]t a law school like [NYLS], which is toward the bottom of the pecking order, it's long been difficult for [NYLS] students to find high-paying jobs.”  A reasonable consumer seriously considering the school would recognize that.  “It is also difficult for the court to conceive that somehow lost on these plaintiffs is the fact that a goodly number of law school graduates toil (perhaps part-time) in drudgery or have less than hugely successful careers. NYLS applicants, as reasonable consumers of a legal education, would have to be wearing blinders not to be aware of these well-established facts of life in the world of legal employment.”  (Brian Tamanaha points out that this resolution—that no reasonable person could rely on law school claims—is only a victory in the narrowest sense.)
The complaint also cited NYLS’s website statements indicating that a law degree could be useful to a nonlawyer, and the court referred to a “widely held perception” that a good law degree “opens innumerable career paths.”  This contradicted plaintiffs’ contentions that NYLS made it appear as if all jobs reported were full-time law jobs.
Further, plaintiffs alleged that they relied on NYLS’s statements in deciding to remain enrolled at NYLS.  “Given the impact of the 2008 Great Recession on the legal job market as described in plaintiffs' complaint, NYLS’s statements could not have been materially misleading to a reasonable consumer acting reasonably under the circumstances, i.e. taking into account the obvious, dramatic changes in the economy as they began to impact the legal profession.”
The court also held that the GBL claim failed to satisfy the requirement that plaintiffs show actual, identifiable injury.  Plaintiffs alleged that a NYLS degree is worth less than advertised, then tried to measure their damages as the difference in value between “a degree where a high paying, full-time, permanent job was highly likely and ... [a] degree where full-time, permanent legal employment at any salary, let alone a high salary, is scarce, as is the case in the legal market.” They sought restitution of tuition and also alleged consequential damages such as interest on loans, books, traveling and housing expenses.
NY law doesn’t provide a cause of action for refund of the purchase price of a service on the ground that it wouldn’t have been purchased absent defendant’s acts or practices.  To avoid this bar, plaintiffs argued for damages based on the difference between the tuition and the true value.  NYLS responded that plaintiffs hadn’t alleged facts to show how the cost of tuition was affected by the alleged misrepresentations. 
The court suggested that this wasn’t the key problem; though plaintiffs weren’t seeking reimbursement of the purchase cost, their theory of price difference was far too speculative to serve as the basis of a damage claim.  Price inflation claims can be viable, but this complaint didn’t allege facts from which damages could be inferred as a direct result of the alleged wrong.  The court was unwilling to speculate about the “true value” either of what NYLS allegedly promised or what the NYLS degree was allegedly worth.  (The court several times noted that, for obvious reasons, plaintiffs didn’t deny that they received a quality legal education at NYLS and only challenged its value in the job market.)  Though plaintiffs argued that the difference between the value of a degree producing a 40% chance of a job and the value of a degree producing a 90% chance could be measured through expert testimony, the court disagreed.
Separately, the suggested measure of damages was speculative for another reason.  Eight of the 9 plaintiffs graduated into the Great Recession.  Plaintiffs described the dire situation in detail: “Since 2008 alone, the largest 250 law firms in the country have eliminated 10,000 positions, while commoditized, legal-entry work such as document review is increasingly being outsourced to countries outside the US, such as India. The entry-level employment offer rate for 2009 summer associates was at a historic low of 69 percent, as compared to 90 percent in 2008 and 93 percent in 2007. … [O]nly 3 percent of on-campus recruiters indicated that they were looking to hire third-year law students, as compared to 25 percent in 2008 and 42 percent in 2007.”  There are 43,000 new lawyers a year with only 26,000 jobs available.
“In these new and troubling times, the reasonable consumer of legal education must realize that these omnipresent realities of the market obviously trump any allegedly overly optimistic claims in their law school's marketing materials.”  NYLS’s alleged misstatements “themselves became obsolete statements as a result of the bleak prospects for legal employment as a result of the Great Recession.”  It would require “naked speculation” to measure the alleged difference in value against the supervening background of the market collapse.
Unsurprisingly, these conclusions equally doomed the fraud/fraudulent concealment claim.  Plaintiffs argued that NYLS, because of its superior knowledge/communication of half-truths, had a duty to disclose that its definition of employment included non-legal, temporary and part-time employment, that the employment rate included graduates employed temporarily by NYLS, that the reported median and mean salaries were drawn from high earners, and that part-time and temporary employees were excluded from those reported averages.  The court disagreed: the complaint itself indicated that plaintiffs had access to publicly available information about the realities of the legal job market.  Also, NYLS didn’t offer half-truths or misleading statements; as the complaint acknowledged, it complied with ABA standards.  (Apparently now the ABA standards have some legal force!)  The marketing materials “merely presented some basic information with respect to those of its graduates reporting their employment and salary information, nothing else.”
NYLS also argued that plaintiffs failed to plead specific reliance on salary information.  The court disagreed: the complaint specified that each plaintiff relied on NYLS's reported salary data and representations that approximately 90 percent of NYLS graduates were employed within nine months of graduation, that these statements were posted on NYLS's website, in NYLS's marketing materials, and in various publications by third-party data clearinghouses, and that these statements were made each year during the 2005–2009 period. This was enough to put NYLS on notice.
However, plaintiffs’ pleading was defective because reliance must be reasonable.  This is a contextual inquiry:
Here, plaintiffs were among the select segment of students accepted into an American law school. They were making a substantial economic commitment, for which most of them would incur substantial debt, and they had ample opportunity to discover their realistic post graduation employment prospects by consulting the many sources of information they cite in their complaint, and cannot claim that it was reasonable to confine their research and reliance solely on what amounts to just two sentences in NYLS's marketing materials. This is especially true with respect to their allegation that they based their decision to remain enrolled at NYLS on that data, while at the same time being aware that the Great Recession already had halved the jobs available to them in the legal market. It is simply not plausible that NYLS's data thus was the predicate on which plaintiffs relied to conclude they were guaranteed a job in the legal profession, commensurate with their education, within nine months of graduation.
The negligent misrepresentation claim similarly failed for want of reasonable reliance.
In conclusion, the court offered its thoughts on the plight of recent law graduates.  Recent graduates “entered law school with the most optimistic of expectations and instead find themselves without work and competing in a log jam of young lawyers, none of whom have any experience to offer employers who themselves must contend with clients that are insisting they will pay full freight only for seasoned professionals they know can add real value to a representation.”  It’s too late for plaintiffs to undo their choices.  “Essentially, as law graduates who made their decisions to go to law school before the full effects of the maelstrom hit, they now have turned their disappointment and angst on their law school for not adequately anticipating the possibility of the supervening storm and presenting the most complete job-related data that could possibly have been compiled.”  Whatever their complaints, a court wasn’t the place to adjudicate them.
Still, the court recognized that “many outstanding law graduates … have passed the bar and have been unable to find work in their chosen profession.”  Market forces may offer some correction—the court also took judicial notice of the NYT’s report on the sharp fall in the number of LSAT takers.  But, the court continued, we still have a collective responsibility to help those already caught up in the maelstrom, and to provide information to those who come after. 

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